The Punjab National Bank (PNB) has become the only bank to receive Reserve Bank of India's approval to enter both life and general insurance underwriting businesses.
Bank sources said the bank received the central bank's clearance to enter the general insurance business today. It had earlier received the RBI sanction to set up a life insurance company.
PNB would hold 15 per cent stake in both the life and non-life insurance ventures, 26 per cent with international finance major Zurich and 59 per cent with the Hero group. The initial equity of the ventures is expected to be Rs 100 crore.
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Executives said that the memorandum of understanding between the three partners would be signed shortly. They, however, did not set any time frame for filing an application for obtaining the licence from the Insurance Regulatory and Development Authority (Irda).
State Bank of India is the only other public sector bank to receive the RBI's approval to set up an insurance underwriting company. SBI has tied up with Cardiff and has already launched insurance products.
ING Vysya and Jammu & Kashmir Bank have received the Irda permission for underwriting insurance covers.
PNB has a network of over 4,000 offices which it intends to leverage for distribution of insurance products. The bank's application for permission to set up a general insurance company had been pending with the RBI for a long time, while the clearance for the life insurance venture came in June this year.
Though RBI had issued norms for entry of banks into insurance, it is against the entry of public sector banks into the business. Bank of Baroda has also sought the regulator's permission to set up a life insurance venture.
So far, three banks have approached the Irda to venture into the insurance business with SBI being the sole public sector entity to have received the insurance and banking regulator's sanction.
RBI's has capped banks' equity participation at 50 per cent of the insurance company's total paid-up capital. It has also set a net worth criteria of Rs 500 crore, capital adequacy of 10 per cent and has also stipulated that banks making profit for the last three years continuous years will be permitted.
Though a number of public sector banks such as Bank of India, Oriental Bank of Commerce and Allahabad Bank had intended to enter the Indian insurance market, they have all dropped plans for the time being.